The Guide to Understanding and Protecting Credit
Top Ten List of Worst Credit Card Company Practices
by Walter Burch
The following list will come as no surprise to those of you who have felt the sting of credit card industry practices, or listened to cardholders tell tales of exorbitant rate hikes, hidden fees, hard-to-read cardholder agreements, or "bait and switch" marketing offers.
However, while the credit card industry has long been criticized for its aggressive marketing and usurious interest rates, the situation today has escalated to the breaking point, and many Americans see no way out. What is most disturbing, however, is the fact that many credit card companies continue to send the message that they don't care about customers. This statement understates the real tragedy: Not only do credit card companies often show little concern for customers, but they rely more and more on the financial missteps, misfortunes, and even innocent changes in a consumer's "risk profile" to trigger a growing number of "gotcha" fees and penalties that have become financially devastating to increasing numbers of cardholders. Of course, what's tragic for the customer can be very "good" and profitable for the credit card companies.
Cardholders, then, are urged to use credit cards sparingly, check credit card statements carefully, and pay them immediately to avoid late fees and penalties. In addition, it is important to monitor credit reports for any changes. Also, take the time to carefully understand the fine print that is contained in credit card agreements. Be careful not to become trapped by one or more of the following credit card company tricks, and know what you can do to fight back.
- Universal Default Interest Rate Ladder - Your credit card company can double or even triple your interest rate due to a perceived change in your credit picture even if you have a perfect payment record with them. What's more, your jacked up rate can apply to your entire balance, not just new charges moving forward. If you see an agreement with this clause, don't accept the card. Run! Take your business elsewhere if at all possible. Chances are, you may already have a card with this clause, so beware! Your credit card company will periodically scan your credit report for one of several Universal Default triggers. These may include even a single late payment on another credit card, your mortgage or utility (phone, electric, etc.), exceeding your credit limit on just one of your cards, a credit score that declines, taking on a new home mortgage or auto loan, having too much overall debt, or simply applying for additional credit. When do most consumers discover Universal Default? When they get their credit card statement and begin to hyperventilate. By then, it's too late, and the iron door has been slammed shut.
- Outrageously High Interest Rates - There's got to be a law against pillaging. No, there is no federal limitation on the interest rate a credit card company can charge. There may be a law in the state where you live, but probably not in the state where your credit card company is located and that's what counts. Eight of the top ten credit card companies are located in states with no cap on interest rates; the other two are located in Arizona (with a cap of 36%).
- "Please Be Late" Policy - Late fees have become a cash cow for the credit card companies. So much of a cash cow that many companies now mail your statement as close to the due date as possible. If you receive it only ten days before it's due, you better be on the ball or you're headed for a juicy late fee. Beyond the day your payment arrives, many set a specific time of day when your payment must arrive. One minute late and you're hit with another late fee. There's a reward for card companies. Late fees which averaged about $13 in 1995, now average $34 as one bank after another has played follow the leader and jacked up their late penalty booty to stay sharp and competitive.
- Two-Cycle (Double-Cycle) Billing - How would you like to be charged interest on debt you have already paid off? It can happen if your card comes with double-cycle billing. This confusing two-cycle average daily balance method calculates your charges by taking the sum of the average daily balance for two billing cycles. The first balance is for the current billing cycle, the second for the previous one.
- Confounding Cardholder Agreements - Credit card issuers go to great lengths to carefully design cardholder agreements that few people can encode. The result: The true cost of a credit card, and its risks, are hidden from the consumer until the statement arrives. If credit card companies insist it is necessary to accommodate risk by charging exorbitant rates and fees, do they also insist that they should be carefully hidden and hard to detect?
- Pre-Approval Scheme - What this really means is you are not approved. You may be, but you aren't yet. However, the word "approved" has a nice ring to consumers so it's the perfect way to offer a low interest rate card to folks who fall for the trick. Check out the fine print in the offer and you'll find that if you "fail to qualify" for the rate offered, you can be issued another card. Beware, that substitute card may take you to the cleaners. Furthermore, it's likely you received this offer because you have been carefully chosen, via "predictive modeling" as having the perfect credit profile for this "bait and switch." You can opt out of most pre-approved credit card offers by calling 1-888-5OPTOUT.
- Customer Service Nightmare - Apparently, credit card companies have designed their customer service not to assist customers. Instead, the maze-like system of waiting queues seems orchestrated to break the will and spirit of consumers to the point that we often "throw in the towel" convinced that we're engaged in a frustrating, time-consuming, and hopeless pursuit.
- How about a Raise? - Credit card companies can raise your interest rate at any time, for any reason, upon 15 days notice. Check your mail.
- Balance Transfer Fees - Here's an offer you may want to refuse: Transfer your balance to a card with a low introductory rate. Beware of the tricky transaction fee for transferring that balance as it's normally 3% to 5%.
- You're Over the Limit - It used to be that credit card transactions that put you over your credit limit would be denied. Today, the credit card companies are only too happy to approve them, and then sock you with over-limit fees up to $39. Pay especially close attention to this one. This is not a one-time over the limit fee. It will chase you, month after month, until you bring your balance below the limit.
Lesson 1: The Guide to Understanding and Protecting Credit
Lesson 2: Your Credit Report: The Picture You Present to Lenders
Lesson 3: Your Credit Score: A financial asset worth protecting
Lesson 4: How to Make Sure Your Credit Reports Are Accurate
Lesson 5: How to Improve Your Credit Score
Lesson 6: Credit Monitoring
Lesson 7: Identity Theft
Lesson 8: Identity Theft - 7 Common Warning Signs
Lesson 9: Identity Theft - How You Can Prevent It
Lesson 10: Identity Theft Victims - Steps to Take
Lesson 11: Keys to Credit
Lesson 12: Separating Fact from Myth
Lesson 13: Top Ten List of Worst Credit Card Company Practices
Lesson 14: Fighting Back Against Credit Card Company Practices
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